TAX TIP No. 45
Uncle Sam can help pay some adoption costs
In these cases,
the new parents are allowed
to claim the maximum credit
amount even if their actual
expenses did not reach that
amount. For example, your
special needs adoption process
was finalized in 2008. It
took two years, over which
time you spent $10,000.
On your 2008 return, you can claim an adoption credit of $11,650 even though your actual expenses fell $1,650 short.
Accounting for employer assistance
In addition to the tax credit, adoptive parents
who get financial help from their companies may be able to avoid paying tax on
up to $11,650 of that employee benefit.
You may claim this
income exclusion along with the tax credit for the same adoption, basically doubling
your adoption tax break.
The only limitation: You cannot use
both the exclusion amount and credit to write off the same expense. For example,
if your company reimburses your adoption travel costs of $11,650, you cannot use
these expenses as part of your credit filing. But all other eligible costs up
to that amount may be counted toward the credit.
Other credit considerations
While you can adopt a U.S.- or foreign-born
child, in most cases the youngster must be younger than 18. The age limit is waived
if the child is physically or mentally challenged.
count expenses related to surrogate parents or the adoption of your spouse's child
in figuring your allowable credit.
Married couples generally
must file a joint return to take the adoption credit or exclusion. If you file
as married filing separately, the credit is available only if you meet special
The credit amount is per child, not per year.
So if the adoption of your son takes four years and costs $17,000, you will be
able claim only $11,650 of your expenses during that whole time. You can carry
forward any unused credit amounts for the adoption for up to five years.
the adoption is not completed, you still can claim the credit for your expenses
in the unsuccessful adoption attempt.
The credit begins phasing
out if your modified adjusted gross income exceeds $174,730. You can't claim the credit at all if you make more than $214,730. The same limits apply to either
single adoptive parents or the total income of married couples filing jointly.
Claim your adoption
expenses, as well as any adoption-related
benefits you received from
your employer and can exclude
from your income (also up
to the $11,650 limit), on Form
8839, Qualified Adoption
Expenses. Also, the adoption
credit can no longer be claimed
on the slightly shorter Form
1040A. You now must attach
Form 8839 to the long Form
|-- Updated: March 10, 2009